Intergenerational report: Grey army marches to our rescue

Peter Martin, James Massola

Beneath all the talk about finances, beneath the spin about which side of politics would handle Australia future better, this week's Intergenerational Report contained a disturbing truth: the day is fast approaching when a much smaller proportion of the Australian population will be able to work than we've become accustomed to.

Treasurer Joe Hockey said on Thursday the point of the Intergenerational Report, or IGR, was to "begin a conversation with the Australian people; every town hall, every street corner, over every barbecue, we want Australians to embrace the future. It's a great future. Our nation has a fantastic future, but we've got to own it".

Liz Dec, 66, at Teachers Mutual Bank where she works in Homebush, Sydney. Photo: Janie Barrett

But in his framing of the report Mr Hockey has also made clear the IGR - which set out two "sliding door" scenarios that show a ballooning debt under the former Labor government's policy settings and net debt paid off by 2031-32 if all of the Coalition's first budget had been passed by the Senate - has a political purpose.

Labor's Chris Bowen points out not unreasonably that the "previous policy" scenario modelled in the report actually takes as its starting point the 2013-14 mid-year economic update, which includes a near $9 billion injection of funds to the Reserve Bank and the impact of scrapping the carbon and mining taxes, for example.

But in the coming two months before the Coalition's make-or-break second budget, expect the Treasurer to lean heavily on the report as he attempts to make the case for further savings and belt-tightening - even as a families package and tax relief for small business is prepared.

The starkest illustration of the change in how many Australians will be able to work isn't presented in the report itself but can be derived from the figures buried within it. At the moment there are 2.1 Australians of traditional working age to support each Australian of traditional dependent age - either too young to work or what used to be thought of as too old to work. By 2055 the ratio will have shrunk to 1.7.

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The actual number of Australians available to work won't have shrunk (the report says our population will almost double, to 40 million) but the number available to support each Australian traditionally regarded as needing support will have shrunk by one-fifth.

Looking beyond the political debate, there are real demographic challenges that all parties must confront.

The rise of the machines

We'll cope in part by substituting machines for people, as we have done for years. Launching the report on Thursday, Hockey said 40 years ago it took two hours of work to make what takes one hour today. But the biggest fear among the treasury officials responsible for the intergenerational report is that that easy gain has been had. Once we remove the labour from an operation we can't do it again. We automated telephone exchanges. We can't automate them again. What we are left with are tasks such as caring for senior citizens in nursing homes, things that can't be as easily automated.

But the treasurer is optimistic.

"I urge people to go and do an internet search of driverless cars," he said on Thursday. "There is credible evidence that suggests that by 2040 three-quarters of the cars on the road will be driverless." It's a future prophesied a half a century ago in the cartoon series The Jetsons, except that those cars were going to fly.

Hockey has a new Holden Commodore. He says he can press a button and it parks itself. If he is correct and three-quarters of the cars on the road drive themselves we'll soon be able to catch driverless taxis and buses, and we won't need to drive ourselves - something that will help when an unprecedented 2 million of us are beyond age 85, the time of life at which the authorities traditionally make it hard to keep a driving licence.

Technology, the Treasurer said, will play a huge part in changing the way Australians live - from apps to driverless cars that will be "absolutely transformative for people like my parents who are in their 80s, who want to stay in their home. And a driverless car, you hop into the car, you press a button, it takes you to the doctor, takes you to – you know – the shops, takes you to the grandchildren".

By 2055 retailing will be mostly online. Corner shops won't need to employ as many people because most will no longer exist. Newspapers will no longer be home delivered (and will almost certainly no longer be printed). Australia Post will have stopped delivering letters daily.

And yet the treasury believes productivity will only climb by 1.5 per cent per year, about its recent average. Its report doesn't buy into the Treasurer's optimism.

Working longer, and longer

We'll also need to keep working. The previous government began lifting the pension age from 65 to 67. This one wants to lift it to 70. A half a century ago men who retired at 65 could expect only another 12 years of life. Now they can expect 19. By 2055 they'll expect 26. As work becomes easier (these days more of us work in offices than factories) and we find we've many more years on our hands it's entirely reasonable to expect us to work for longer.

Some employers are begging for it. At Teachers Mutual Bank in Western Sydney one third of the workforce is over 50. Liz Dec is 66. She was hired to work there at the age of 58.

"I arrived and discovered everyone I met had been here for 10 or more years, some 15, some 20," she said. "No-one leaves."

To keep staff and to keep its older staff healthy the bank runs workshops on diet and health.

Dec says before she started work in the bank's call centre she didn't know how to read the labels on cans of food.

"And they offer aerobics classes and pilates classes. Last year when I turned 65 I told them I was thinking about retiring. They told me instead I could transition, maybe take off one day a week and then the next year two days. They value older people, and they told me it would be fine to apply for a promotion."

More and more employers are going to go after older workers and fightto retain them. The hardware chain Bunnings says one quarter of its workforce is aged over 50. Hockey says he met met a worker there in his mid-80s last week and made the mistake of asking him how many days a week he worked. The answer was five.

Working women

Four decades ago only 43 per cent of working age Australian women made themselves available for paid work. Many of those who left to have children never came back. Now 58 per cent of Australian women are available for paid work, but it's still well short of the 62 per cent in Canada and New Zealand. Hockey says he has heard that in the Canadian province of Quebec childcare is available for just $5 a day.

Australia is also well behind New Zealand in the employment of men. There Hockey thinks the reason is compulsory superannuation. We have it, and New Zealanders don't - so they have to work longer. While Hockey hasn't talked about ending compulsory superannuation (although he has talked about taxing it more fully) he is keen to remove whatever remaining barriers prevent mothers and men or any age from turning up for work.

In the case of both women and older Australians, the Treasurer said as he launched the report that it was a "call to arms" for reform and that these two groups were the twin keys to future prosperity.

"The grey army is going to deliver prosperity in Australia's future and we need older Australians, we want older Australians, if they choose to do so, to remain in the work force and to come back into the work force," he said.

"The second major army that we have of potential workers is women coming back into the work force, particularly after having children."

Making Australia bigger

Traditionally we've solved labour shortages by bringing in more workers. It's how we built the Snowy Hydro scheme, how we filled our schools with teachers in the 1970s and how we built mines in remote parts of Australia at the start of the 21st century. Yet curiously, for such a forward thinking document, Hockey's intergenerational report assumes no increase in immigration whatsoever. It remains stuck at 215,000 per year, each year for the next 40 years during what we are assured will be a time of growing labour shortages. It's a lower immigration rate than we have today.

In contrast, the 2002 IGR forecast net overseas migration of 90,000 people per annum; in 2007 the forecast was for 110,000 people and by 2010, the forecast was for 180,000 people per annum (net overseas migration peaked at 300,000 in 2008-09).

That 2010 forecast helped set off a difficult political debate about Australia's population growth, so by choosing a lower immigration number than we have at present and preventing it from climbing, Hockey also tried to head off a renewed debate about a big Australia. Labor's Treasury spokesman Chris Bowen, for his part, said he would not play politics as the 40 million figure was simply a projection and not a target, "based on the advice of the professional bureaucrats in the area".

"I think palatability has played a part," says demographer Martin Bell at the University of Queensland. "To remain constant as a share of the population the immigration total has to climb each year, but a steady number looks less alarming.

Bell says it wasn't long ago the former prime minister Kevin Rudd courted controversy by speaking out in favour of an Australia of 40 million. At the time most projections were for around 28 million. Yet 40 million is what Hockey's intergenerational report forecasts. Higher immigration assumptions would have pushed the total even higher.

Yet Bell thinks 215,000 per year might be a reasonable guess. He is more optimistic than many about our ability to fill labour shortages ourselves by getting more people into work and eating into the ranks of the unemployed.

Framing Labor

The intergenerational report's two "sliding doors" scenarios are designed to wedge Labor politically. Had Labor's policies been continued, the argument runs, the budget deficit would have hit $534 billion by 2055 or around 12 per cent of gross domestic product - a figure highlighted to shock voters. In contrast, the Coalition is presented as a model of fiscal rectitude because its budget measures that have been able to pass have already wound back projected deficit to half enormous figure and, of course, there would (eventually) be no debt if all of the first budget had been passed.

But many of the assumptions behind those conclusions are unreasonable, among them that Labor would have kept to its promise to keep increasing foreign aid each year into the future, that Labor would have never lifted taxes to fund its commitments to schools and hospitals, that the Coalition would continue to underfund hospitals by more each year for four decades, and that either side would remain in power until 2055.

Hockey's use of the report to beat Labor over the head about debt and deficit, while predictable, is therefore to some extent disingenuous. But it's not just the Coalition playing politics when it comes to the IGR; Bowen said, after the release of the report, that the government should have used the IGR to "lift the public debate, to move out of day-to-day issues of politics and to talk about a vision for the future of Australia".

But Labor opposes the gradual rise in the retirement age from 67 to 70, despite Hockey and co. having backed the rise to 67 while in opposition. Given the rising life expectancy of Australians forecast in the report, a move to 70 is surely inevitable and Labor's opposition is surely just base politics.

The projections contained in the IGR highlighted a series of crucial changes Australia will face in the coming four decades, whether we are ready to embrace them or not.

It also showed that Australia's political leaders, for all their good intentions, just can't help themselves when it comes to playing politics.